Kexim prices SFr500 million three-year bond

Korea's Export-Import Bank taps wealth management demand for record Swiss franc bond deal.

Export-Import Bank of Korea (Kexim) launched and priced a SFr500 million ($483 million) three-year bond on October 1, showing it is still one of the most nimble and opportunistic borrowers in the region.

This is the largest Swiss franc deal ever by an Asian issuer and double the amount raised by the Asian Development Bank in April. It is also the biggest non-US dollar bond transaction out of Asia so far this year.

The state-owned trade policy bank, assigned the sovereign rating of single-A and A2 by Standard & Poor's and Moody's Investor Services respectively, re-offered the bonds at 99.934 to yield 2.523% to a maturity date of October 10, 2012. They pay a coupon of 2.5% per year and the issue price, before the discount to investors, was 100.359.

The lead managers, UBS and Royal Bank of Scotland (Zurich), doubled the size of the transaction within two hours of the launch. The total demand amounted to SFr530 million, according to sources familiar with the deal.

Around 100 investor accounts were allocated bonds, with 98.5% distributed in Switzerland. Private banks were the biggest buyers, taking 67%, while asset managers bought 20% and the remaining 13% was sold to insurance companies and pension funds. The bearer bonds were not eligible for sale to the US (or US citizens), the European Economic Area (EU plus Iceland, Liechtenstein and Norway), Korea, Japan, Hong Kong or Singapore.

The issue was priced slightly cheap to similarly rated illiquid secondary market bonds, at 140bp over mid-swaps, or 172bp over the Swiss government three-year benchmark bond. Time deposit rates for Swiss savers range from zero to less than 0.5%.

Late Friday, the bonds were trading 10bp tighter, at mid-swaps plus 130bp.

According to bankers, Kexim's key funding strategy is to diversify its funding sources, but the bank always compares its foreign currency funding cost to its US dollar funding cost. In the past it has taken advantage of investor demand and advantageous swap terms to raise cash in Mexican pesos and Malaysian ringgit. This is Kexim's third Swiss franc deal in the past three years, and the proceeds were immediately swapped into US dollars.

The policy bank is unlikely to return to the Swiss market again this year, unless it identifies strong demand or responds to a reverse enquiry. However, Kexim is considering either a euro-denominated bond or another US dollar public deal by the end of the fourth quarter. It has already raised $3.5 billion through two oversubscribed US dollar deals this year.

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